increasing concern with income distribution effects rather than growth effects of government activities has prompted numerous incidence analysis of government tax and expenditure behavior, in this paper, the extent of government contributions to changes in income inequality is analyzed for the Iranian economy. Some major findings of this research is that income distribution in urban areas was more unequal than in rural areas. Taxes had negative redistributive effects although these negative effects were higher in urban than rural areas.
In addition, government expenditures were found to reduce inequality as the lower income households received a greater share of the benefits than their share of total income. However, fiscal policy was not strong enough to reduce post-fiscal urban/rural income disparities, despite the fact that it had minor positive effects towards reducing inequality.